CLC Analysis of the 2013 Federal Budget

The major economic problem faced by Canadians today is not government deficits, or balancing the budget by the next federal election for electoral goals. The most pressing problems faced by Canadians are a sluggish economic recovery, a stalling job market, stagnant wages, record high levels of household debt, along with inadequate employment insurance coverage and lack of retirement security. Canadians expected their federal government to tackle these problems in the 2013 federal budget.

Leading economists, including bank economists, say that Canada’s economic recovery is stalling due to slowing business investment, high household debt, and weak global growth. Lower than expected exports along with a slowdown in construction starts, and historically high consumer debt, along with ongoing budget cuts, are having a negative impact on Canada’s economic growth and its labour market.

The latest projections published by the International Monetary Fund, the OECD, the Bank of Canada and major banks have reduced the expected economic growth in Canada below 2% for 2013. Private sector economist real GDP growth estimates used in this 2013 federal budget have also been revised, from 2% as predicted in the Fall 2012 Economic and Fiscal update to 1.6% for 2013. At that level, growth will be too slow to absorb job seekers, and this will maintain and even expand the number of Canadians looking for work.

Canada’s unemployment rate remains higher than it was prior to the great recession, at 7%. Canada counts 1.3 million unemployed workers. It is also discouraging for many unemployed Canadians to look for work when there is only 1 job available for every 5.7 unemployed workers seeking work. The real unemployment rate, which includes involuntary part-timers and discouraged job seekers, is 10.8% in February 2013. Meanwhile, the Conservative government introduced measures in 2012 forcing unemployed Canadians to look for jobs that do not exist or run the risk of loosing their EI benefits, which they paid for, if they do not agree to take lower paying jobs for which they are over-qualified, and at a distance of up to one hour’s travel time.

The federal government’s fiscal position is excellent when compared to others. The deficit stands at just 1.4% of GDP in 2012-2013. Total Canadian net government debt in 2011 was the lowest among G-7 counties, at just 33.3% of GDP, compared to the OECD average of 80.4%. Interest rates remain at historically low levels and the government of Canada can borrow through 10-year bonds at under a 2% rate of interest.

Considering the state of the economy, the labour market and the relatively strong fiscal position of the Federal government, the Canadian Labour Congress (CLC) was calling for action in this 2013 federal budget in five areas to help create good jobs in 2013 and beyond, and improve income security: infrastructure; sectoral strategy; training; income security and retirement security.

Unfortunately, the 2013 federal budget will continue with the Conservative’s fiscal austerity agenda, with cuts to balance the budget by the next federal election. The Conservative government is counting on faster growth after 2013 to compensate for the slower growth projected for 2013, plus announced cuts, to balance the budget in 2015-2016. Direct federal government program spending will fall by $4 billion in the coming fiscal year, the result of deep spending cuts already announced in the 2012 budget combined with some tiny increases in the new budget. The deficit is predicted to go down from $25.9 billion in 2012-2013 to a surplus of $800 million in 2015-2016.

Labour’s plan for more and better jobs and income security

The Canadian Labour Congress was calling for action in five areas to help create good jobs in 2013 and beyond, and to improve income security: infrastructure; sectoral strategy; training; income security; and retirement security.

A. Infrastructure:What we needed:

The federal government’s infrastructure program was set to expire in April 2014. Greater investment in infrastructure increases Canada’s productivity while addressing the needs of Canadians. The CLC called on the federal government to launch, in partnership with the provinces and cities, a major multi-year public investment program. Such a program has to include increased support for basic municipal and First Nations infrastructure; mass transit and passenger rail; affordable housing; quality, affordable childcare; energy conservation through building retrofits; and renewable energy projects.

What is in the budget:

The 2013-2014 federal budget shuffles existing investments in infrastructure into a 10 year and $53 billion allocation of new and existing funding available to all levels of government to build roads, bridges, subways, commuter rail and other infrastructure, starting in the 2014-2015 fiscal year. This $53 billion will come from an already committed $32.2 billion consisting of the gas tax fund and the implementation of the GST tax rebate, $14 billion in support of major infrastructure, including $4 billion for federal infrastructure spending, and $1.25 billion to renew the P3 Canada Fund that has proven to be ineffective. Some of this infrastructure money will be reallocated to fund Aboriginal infrastructure, such as $155 million over 10 years to support investment in First Nations infrastructure projects on reserves.

No additional infrastructure spending is announced for 2013, despite slow economic growth in 2013 and the need to rebuild our infrastructure. On top of that, infrastructure spending available to municipalities will be decreased from an average of $3.25 billion to an indexed $3 billion in 2014-2015. This is very disappointing considering the need to invest more in infrastructure to improve productivity while addressing needs of Canadians.

B. Sectoral Strategy:What we needed:

Canada’s over reliance on exporting unprocessed and semi-processed resources has a negative impact on jobs and our economy. The 2013 federal budget should encourage value-added production and investment in key sectors, along with green jobs and green skills initiatives, which will enhance innovation, training and labour productivity. The CLC supports targeted measures to sustain and create good jobs in manufacturing, and to maximize job creation in industries linked to the resource sector and green economy.

What is in the budget:

The 2013 federal budget recycles and extends multiple announcements supporting manufacturing, such as a two year extension to 2017-2018 for manufacturers to accelerate the capital cost allowance for new investment in machineries and equipment; $920 million to renew the Federal Economic Development Agency for 5 years, including $200 million for the new Advance Manufacturing Fund in Ontario; secure funding for aerospace and defence strategic initiatives; and continued support for forestry with $92 million over 2 years. Most of these fairly positive measures will be implemented only after April 2014 despite the need for more today.

Nothing in this 2013-2014 federal budget addresses the need to encourage value-added production and investments in sectors, along with green jobs and green skills initiatives. The Conservative government of Canada is missing a great opportunity to expand economic growth by assisting investment in transforming the natural resources extracted in Canada, and instead continues to export jobs abroad with its over reliance on exporting unprocessed and semi-processed resources. What is even more disappointing is that nothing is done to support investment in green jobs and greens skills initiatives to help reduce the ecological footprint of our economic activities and build a more sustainable economy for future generations.

C. Training:What we needed:

Canada’s economic success and future prosperity depend on a skilled and educated workforce. Unfortunately, Canada falls well below the OECD average in the average hours of job-related, non-formal skills training for employees, and in employer investment in skills training generally. What is needed is a skills development strategy in response to a growing skills gap, an ageing workforce, and the need for greater educational opportunities for groups such as Aboriginals, recent immigrants, and youth. What is needed is better collaborations between all skills development stakeholders, more and better labour market information, and better labour market planning. What is needed is investment of new money in training workers in Canada, instead of making it easier for employers to bring in more vulnerable migrant workers. What we don’t need is money taken away from programs that are already addressing specific issues of labour market integration, such as support for unemployed and underemployed workers in the area of literacy and numeracy, to have it given to subsidize employers.

The CLC calls for a national, tripartite skills development strategy in response to a growing skills gap, an ageing workforce, and the need for greater educational opportunities for groups such as Aboriginals, recent immigrants, and youth. While this budget talks about addressing these issues, there is very little in terms of new money or new initiatives.

What is in the budget:

While it is clear that Canadian employers do not provide enough training, what today’s announcement on training does is shuffle money around and take money away from training provided to workers who don’t qualify for the Employment Insurance program, and give it to subsidize employers to do something they should already be doing: provide training to their new workers.

Budget 2013 outlines a three point plan to address Canada's labour market needs:

The Canada Job Grant, which uses money allocated to literacy and numeracy training and other forms of support for low-skilled unemployed workers who do not qualify for Employment Insurance;Creating Opportunities for Apprentices, which reallocates existing money to implement much needed initiatives for apprentices in Canada;Supporting Job Opportunities for All Canadians, which has some new money for internships and newcomers, but mostly continues or reallocates existing spending for persons with disabilities and Aboriginal peoples.

1- The Canada Job Grant

The Canada Job Grant takes $300 million-per-year from the current $500 million Labour Market Agreements (LMA) going to provinces, and allocates it to a grant for job-related training. Employers will apply for grants to provide their employees with training, up to a maximum of $15,000 per employee. One third of funding will come from the employer, one third from the province, and the federal government will provide the final third. It is not clear that the new Canada Job Grant will support portable, certified training for jobs in highly skilled occupations.

The money can be used at existing training institutions, but details will have to be negotiated with the provinces and others. Employers, educational institutions, and labour unions will be consulted in this process. The renewed LMA with Canada Job Grants will be implemented for 2014-2015, as the current LMAs expire in 2014.

While initiatives to foster a training culture within Canadian workplace is certainly much needed, this should not come at the expense of much needed existing training for low-skilled workers.

Current training spending through LMAs and LMDAs meets this critical labour market need. Adequate literacy is one key skill that many Canadians lack. The LMA is the sole source of government funding for workplace literacy training. A 2003 study found that almost 1 in 2 Canadian adults (age 16-65) lack adequate reading and numeracy skills1. For example, in Ontario 70% of literacy training funding is provided through the LMDA and LMA. Literacy and numeracy training enables Canadians to take on higher skilled, in demand job training, such as construction trade apprenticeships. Statistics Canada finds that a 1% increase in literacy results in a 2.5% increase in productivity and a 1.5% increase in output per capita. Nothing justifies the current reallocation of money from literacy into the hands of employers. More money should have been allocated to do both.

The federal government will also renegotiate LMDAs with the provinces and territories to “reorient training to labour market demand.” Budget 2013 specifically mentions that employers will be consulted, but neglects worker representatives. Labour unions should be involved in consultations renewing LMDAs, since the $1.95 billion-per-year is paid out of the EI fund, which employees and employers pay into.

2- Creating Opportunities for Apprentices

The 2013 federal budget reallocates $4 million over 3 years to harmonize apprenticeship requirements across Canada, and to ensure that assessment methods make sense. This measure will improve the certification process and mobility of Canadian workers. This is welcome news that will assist Canadians in finding jobs in their field across Canada.

The 2013 federal budget will also ensure that federal projects and projects with federal funding will employ apprentices. This includes funding directed toward affordable housing and the new Building Canada Infrastructure Plan. This is something that the Canadian Labour Congress has been calling for years, and we are pleased to see this action in budget 2013.

3- Supporting Job Opportunities for All Canadians

The 2013 federal budget also puts in place targeted measures for specific groups under-represented in the labour market.

Current Labour Market Agreements for Persons with Disabilities will be renegotiated with the provinces and territories. Existing agreements will be extended for one year, to March 2014, to allow time to negotiate new agreements. The focus of the new agreements will be “demand-driven” training. The budget also has a one time funding of $2 million over two years to fund the creation of a Canadian Employers Disability Forum to share best practises for the hiring and retention of persons with disabilities. It also provides for the extension of the annual $15 million to enable workplace adjustment for persons with disabilities

The budget reallocates $19 million to educate youth about high demand fields. This will prove of little use without better labour market information and better co-ordination between employers, educational institutions, and labour. Budget 2013 continues support for programs aimed at increasing high school graduation rates for high-risk youth.

It also increases support for internships for recent post-secondary graduates - $70 million over three years for an additional 5,000 paid internships, on top of the 3,000 paid internships announced in budget 2012. Since experience is currently one of the key skills shortages, this is a good initiative to address the unemployment and underemployment of youth.

The budget reallocates training for On-Reserve Income Assistance Recipients with $241 million over five years to provide training to First Nations youth currently receiving income assistance. The funding is split between personalized job training and service delivery infrastructure for reserves. This funding is only available to reserves who make it mandatory for youth receiving Income Assistance. Provincial workfare rules apply.

The 2013 budget proposes measures to ensure that employers only hire temporary foreign workers when there are truly no Canadians available. Employers who truly require temporary foreign workers must have a plan to transition to a Canadian workforce over time. But no details on how they would achieve this have been provided. Budget 2013 also proposes user fees for employers accessing the Temporary Foreign Worker Program, to offset costs. Budget 2013 introduces new money to expand the Temporary Resident Program and the Citizenship program.

There is nothing in the 2013 budget to assist women in their labour market integration, such as support for access to male-dominated jobs or implementation a quality, affordable childcare program.

Of all measures announced to better connect unemployed and under-employed workers with better jobs, almost 85% of the money announced is money shuffled around. Only 15% of it is new money. While some of these measures are welcomed, more should have been done and new money should have been allocated to these initiatives.

D. Employment Insurance (EI):What we needed:

In its 2012 budget, the Conservatives government introduced measures preventing more unemployed workers from getting access or keeping EI benefits while between jobs. Seasonal and temporary workers are directly affected, many of who are young workers and women.

Ottawa should scrap the recent changes introduced to the EI program. The budget should also provide means to improve access to EI. Currently just 37% of unemployed Canadians receive EI benefits. The CLC calls on the government to implement a uniform, national entrance requirement of 360 hours worked for EI benefits, to increase the benefit level from 55% to 60% of insurable earnings, and to base benefit and duration calculations on a 30-hour work week.

What is in the budget:

The 2013 federal budget confirms that the EI account is in surplus and there is no need to cut EI benefits to those who need them most. Based on the 2013 federal budget estimates, the revenues extracted from EI premiums paid by employers and employees will be $1.4 billion more that benefits paid to EI beneficiaries in 2013-2014. This surplus will double to $2.8 billion next year (2014-2015), then $4.1 billion in 2015-2016.

While we claim that the EI account has remained in surplus during the great recession, when factoring in the $57 billion of surpluses accumulated since the mid-90s, the revised estimates show that EI debt that was accrued because of the great recession will be eliminated by 2016-2017. As a result, the 2013-2014 federal budget already projects to reduce EI premiums to $1.53 per $100 of insurable earnings in 2017-2018, down from $1.93 to be collected in 2016-2017.

On top of that, workers’ premiums paid to EI will continue to subsidize an EI premium credit for larger small businesses. Employers with EI payrolls of over $15,000 (up from $10,000 last year) will be getting a tax credit of up to $1,000. This is paid out of the EI accounts.

Instead of taking away surpluses from EI to balance its budget and announce cuts to EI premiums without any consultations, Ottawa should scrap the recent changes introduced to the EI program and improve access to EI as proposed above.

E. Retirement security:

With high personal levels of debt above 160% of income and stagnant wages, Canadians are finding it difficult to adequately save for their retirement. The CLC continues to call for a doubling of future CPP benefits, phased-in on a fully pre-funded basis.

Most provinces agree that improving the CPP is the best way to ensure that seniors can live in dignity in retirement, but the federal government is dragging its feet. The CPP delivers a defined benefit, fully indexed to inflation, and operates at much lower cost than the proposed Pooled Registered Pension Plans, which will generate large fees for the financial sector and provide a much less secure income for workers in retirement.

The CLC also calls on Ottawa to reverse its decision to move the age of eligibility for OAS and GIS to age 67. The CLC further calls for a 12% increase in the GIS to eliminate poverty among the elderly.

What is in the budget:

In its 2013 federal budget, the Conservative government announced few measures dealing with retirement security. They announced that work will be done with partners to improve financial literacy among seniors, but they do not allocate any resources to achieve this objective. They renewed their willingness to implement Pooled Registered Pension Plans (PRPP). They proposed to introduce changes to distressed pension plans without providing details on how. But there was no announcement on the need to improve the retirement security of Canadians by expanding the Canada Pension Plan and returning the eligibility age of Old Age Security and Guaranteed Income Security to 65.

Worse, the 2013 budget is eliminating federal registered Labour-Sponsored Venture Capital and is phasing-out Labour-Sponsored Venture Capital tax credit used by many Canadians as a pension scheme to help achieve their retirement security, while these corporations invest those savings to maintain and create jobs in Canada. The 15% tax credit applicable to a maximum of 5,000$ per year and match by most provinces will be decreased to 10% in 2015, and 5% in 2016, and eliminated after 2017.

We can afford it:

The federal government’s economic plan is based on the false assumption that if it cuts corporate taxes, the money flowing to companies will be spent to create economic activity and jobs in Canada.

The general federal corporate income tax rate was cut by the Liberals from 28% to 21% between 2000 and 2006, and from 21% to 15% under the Conservatives. Despite a few announcements to close loopholes, the Conservatives continued to cut corporate taxes from 19% to 15% between 2009 and 2012, despite the financial crisis and while running deficits.

Corporate tax cuts have cost Canadians billions of dollars in lower than expected government revenues, led to a higher federal deficit and debt, and led to cuts to their public services and programs.

In addition, corporate tax cuts have allowed private, non-financial corporations in Canada to hoard over $575 billion dollars in cash reserves, money that is not invested in creating jobs in Canada.

To help create jobs and help fund investments in infrastructure, training, and income security, the Finance Minister should either have provided a framework for corporations to put that money to work in its 2013 budget, or he should have taken it back and invested it for the benefit of all Canadians.

Cutting federal spending to balance the budget is not good for the economy. It slows down short-term economic growth and prevents Canada from reaching its maximum potential growth when strategic investments are made to stimulate jobs today.

Conclusion

The budget is a question of choice. Clearly, the choices presented today confirm that the Canadian government does not want to take advantage of its excellent fiscal position to invest in the expansion of a more sustainable economy, productivity, training, and helping to create good jobs while ensuring Canadian workers’ income security today and in years to come.

Today’s unemployment rate is 7.0%, and the budget projections set the unemployment rate to go down to only 6.9% in 2013. This is not a budget that will help create jobs in 2013.

Instead of taking advantage of its fiscal position and trying to put dead money to work by getting more Canadians working in 2013 and beyond, this budget contains no significant new investments in infrastructure in 2013. The budget also reduces investments in infrastructure in 2014 2015. There is also no sectoral strategy to add value to natural resources extracted in Canada, which would prevent jobs from being exported from Canada.

This budget also reallocates money in training instead of investing more money in training. It transfers money formerly allocated to support unemployed workers to employers to subsidize training that they should already be paying for.

All this will take place while ongoing cuts are maintained which will continue to affect services, have a negative impact on job creation and on the income security of Canadians.

1Human Resources and Skills Development Canada (HRDC) and Statistics Canada, Building on Our Competencies: Canadian Results of the International Adult Literacy and Skills Survey 2003 (Ottawa: 2005), Catalogue no. 89-617-XIE